Stanford study: Moving some public workers to Obamacare could save billions

Shifting hundreds of thousands of state and local government workers to less expensive coverage under the new health care law would save California about $1.4 billion a year, according to a study released this month by a group of Stanford University academics.

Taxpayers could save almost $12 billion a year nationwide if two segments of America’s public employee sector — retirees under 65 and low-income government workers — were moved to coverage under the Affordable Care Act, the study found.

“It’s going to be very tempting,” said Dr. Jay Bhattacharya, a Stanford University associate professor of medicine and health care economist who co-wrote the study with two other Stanford professors and a researcher.

Savings in health care costs have long been touted as a major upside of President Barack Obama’s landmark health care overhaul, but critics say such a proposal would serve as another example of how the law deprives some consumers of health care choices.

Bhattacharya acknowledged that the conclusions would be vigorously challenged by employee unions across America whose benefits are covered by labor contracts.

Indeed, the director of collective bargaining at the American Federation of State, County & Municipal Employees, the nation’s largest public service worker union, called the savings numbers “virtually invented.”

“We do not think it is good for employers or employees to end employment-based health coverage,” Steve Kreisberg said. Employers that fail to provide adequate health benefits for their employees, he warned, will find that they are at a competitive disadvantage in the labor market.

Under the law, employers with more than 50 full-time workers must provide affordable health insurance — or pay a penalty ranging from $2,000 to $3,000 for each worker it fails to cover. But because employee health plans are so expensive, the study found that with certain workers, state and local governments could pay the penalties and still save money.

The Stanford study focuses on two key groups: employees whose lower household incomes qualify them for federally subsidized insurance or Medicaid (Medi-Cal in California) plans and people who are retired but are not yet 65, when they can collect Medicare.

In California, 500,000 lower-income government employees would be affected, Bhattacharya said, as would 134,000 under-65 public sector retirees.

To be sure, the authors point out that the extra costs would be picked up by the federal government, adding to the nation’s overall price tag for Obamacare, currently estimated at $1.4 trillion from 2015 to 2024.

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Yet state and local governments have never been shy about accepting federal subsidies. And the potential financial incentives of such a proposal — especially in the face of skyrocketing employee pension and retiree health care costs — could prove tough to ignore, the authors say.

“It creates a huge problem for the federal government, but that’s not California’s problem,” Bhattacharya said.

The concept is already being tested in Chicago. Last month, Mayor Rahm Emanuel, Obama’s former chief of staff, alerted more than 30,000 retired city workers that he plans to move their health insurance plans to Obamacare. Unions are fighting back.

In California, Gov. Jerry Brown’s budget staff said it hasn’t had an opportunity to review the study. Nor had policy staff at Service Employees International Union Local 521, said a spokeswoman there. The union represents 57,000 public employees in California, including 9,500 in Santa Clara County and 1,700 workers in San Mateo County.

Representatives from both the League of California Cities and the California State Association of Counties said they weren’t aware of any such move by their members.

But in San Jose, the country’s 10th-largest city, staff said they wouldn’t rule out the idea, at least for its 2,100 retirees under 65.

“Although we have not yet evaluated moving under-65 retirees to health care exchanges, we will be continuing to explore all options, including those that may be available through the Affordable Care Act,” said Deputy City Manager Alex Gurza.

Officials in the counties of Santa Clara, Alameda, Contra Costa and San Mateo said they are not currently considering such an option but wouldn’t dismiss it.

Bhattacharya acknowledges that legal issues will arise over union contracts. But even if the contract language doesn’t explicitly permit such changes, he believes state and local governments would have strong motivation to find ways around such language. At the very least, he said, they may want to make sure that future retirees will be eligible only for plans on the exchanges.

Besides, he said, state and local governments can rely on a strong argument: Both the low-income employees and the retirees under 65 would still have health care, just not the broader plans they were used to.

“Anyone who sits down and does these calculations,” Bhattacharya said, “will find the same thing we found.”